It's strange how quickly I got pulled into the whole game. Last month, I spotted a house in Thornton Park, one of Orlando's historic neighborhoods. It was listed at what I thought was a very reasonable price. My fiance and I called up our realtor, checked it out, and all-of-a-sudden we were making an offer on this place. We eventually ended up pulling out of the deal. While the house seemed like a decent deal it would have required us pouring money into it to repair the plumbing and some of the structural, assuming that the seller's took care of the wiring upgrades.
After that we found ourselves checking out more homes, identifying more possibilities. We made another offer last weekend and, perhaps fortunately for us, the seller took another offer that just happened to come in on the same day. Why do I think we may have been fortunate?
I think housing is in for another rough year. I just don't know who is going to buy the inventory that is out there at the prices that people are asking. There is $1 TRILLION in ARMs that will reset this year. 1 TRILLION DOLLARS! What are all of these people going to do? Sure, some will hang on to their homes and keep making their inflated payments. But, many of these people, who figured they would sell and get out with a nice profit, will find that there is no one to sell to; that the house they bought in 2004 is now worth less than when they bought it.
The National Association of Realtors (NAR) is trying to spin the news to make it sound like the housing bust is slowing down. Remember, these are the same people whose job it is to sell you a house. It's interesting to see how they do it. When the housing boom was happening, the NAR would release statements stating how home prices had risen vs. the previous YEAR. If you look in the news these days you'll see how their statements now talk about home sales are up vs. the last MONTH. They can't compare vs. last year any longer because then they would have to talk about how home sales are still 15+% lower than last year. Be careful who you listen to in the news.
Part of me thinks that I might be missing the bottom of the market and that I should buy now before the real buying season begins. But, a larger part of me comes back to the same question. Who is going to buy all of these houses?! I look around Orlando and see all of these concrete block homes in older neighborhoods listed for $279,000. Let's say you want to buy that place and have 10% to put down (which is a stretch these days but let's say it anyway). With a 30 year mortgage at 6.5% your monthly payment would be $1586/month, just for the principal and interest. Assume your property taxes run about $360/mo. (calculated on the Orange County appraiser's website) and insurance, which everyone knows is fun in Florida, runs you another $200/mo. You're looking at a monthly payment $2146. Over 12 months that will run you $25,752 in mortgage payments. That is after tax money. If you pay about 40% of your salary in taxes, you would need to make $42,920/year just to pay for your house. As of the 2000 census the median family income in Orlando was $40,648. That's all the money this family has, for food, clothing, vehicles, everything. So, the average person in Orlando can't buy the average house in their town. That, to me, seems like a big problem.
Where does that leave us? That leaves us with one group of people that bought a house and now can't pay for it and another group of people that would love to buy a house but have been priced out of the market. Either the group of people that can't afford to buy a home need to get huge raises in 2007 or housing prices have to fall. My money is not on the house.
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